Time for your cheat on this week’s most important stories.
Canadian Real Estate
Millions of homes sit vacant across the world, and Canada is one of the worst offenders. OECD data shows 1.34 million vacant homes in Canada, the fifth highest for advanced economies. The US topped the list with 15.55 million, or 1 in 12 homes sitting vacant. Japan, notorious for its vacant home problem, had the highest rate with 1 in 7 homes sitting empty. Higher interest rates or property taxes can literally create years of housing supply.
Ontario’s largest segment of home buyers already have at least one other home. Teranet, who operates the land registry, found multiple property owners bought 25% of supply in 2021. At the same time, first-time home buyers fell to just over 22% of the housing supply. Over the past 10 years, multiple owners advanced 8 points of market share. At the same time, first-time home buyers fell as investors displaced them.
Is Toronto or Vancouver real estate too expensive for your budget? Try a more affordable city, like New York or Los Angeles. Oxford Economics data shows Toronto is the least affordable city in North America. Vancouver isn’t too far behind, winning the title of the third least affordable city. Montreal wasn’t in the top 10, but it tied with cities like New York and Miami for affordability. Prices are forecast near its plateau, but affordability will get worse as rates rise.
One of Canada’s largest financial institutions sees the Bank of Canada (BoC) forced to hike rates. Desjardins’ forecast shows an interest rate hike of 25 basis points (bps) in July 2022. Another hike is expected to follow before the end of next year as well. This is triple the current interest rate, and a quarter sooner than forecast last month. The reason is due to inflation, which is increasingly looking less transitory.
Canadian new home prices slowed in growth for the first time since 2019. The New Home Price Index increased by 0.4% in September, bringing prices 11.3% higher than the same month last year. It’s a solid increase, but annual growth is decelerating. Analysis shows this rate is likely to further taper in the coming months.
Canadian real estate prices have hit the “pause” button on growth, said one of the Big Six banks. National Bank of Canada (NBC) reported C11 index growth fell to just 0.1% in September. The index, which measures prices in the 11 biggest cities, decelerated for a fourth month. It was the smallest gain since January 2020 as well, having fallen from its record. Slower price growth has pushed cities like Vancouver just off their record highs.
Canadian inflation hit a new high, and it’s being downplayed. Canadian CPI showed 4.4% annual growth in September, up from the 4.1% a month before. National Bank of Canada, one of the Big Six, found shorter-term price acceleration. It’s not just a base effect — prices are accelerating on a short-term basis as well.
Canadian mortgage credit saw the fastest growth since 2008, as the balance hit a new record high. Mortgage debt reached $1.76 trillion in August, up 9.72% ($155.93 billion) higher than last year. Growth at twice the rate of GDP might be considered too hot, but not in Canada. As it outstrips economic output, the economy becomes further dependent on non-productive assets. This slows further economic growth on a long-term basis.
Canadian consumers lowered expectations for home price growth, said the BoC. The median annual forecast fell to 5.3% in Q3 2021, down from 5.7% in the previous quarter. Price growth is still seen as higher than pre-pandemic growth, but down from its peak. As expectations fall, so does the readiness to pay more for homes. It can be a sign of sentiment deteriorating, which is strangely happening as the economy recovers.
Canada’s central bank found the share of local businesses that think inflation is out of control hit a new high. The survey found 45% of businesses in Q3 2021 expect inflation to rise above 3% for the next two years. That’s a big climb from just 11% this time last year, and more than the 42% in Q3 that see inflation within target. BMO said it was the first time such a large share of businesses are forecasting out of control inflation. This is sparking further rate hike talk. It’s what all the cool kids are talking about, we hear.
Canadian new housing starts fell for a fourth month, but remain elevated. The seasonally adjusted annual rate (SAAR) trend fell to 271,068 homes in September. This is down 4.8% from the previous month, but is still much higher than pre-pandemic levels. It might drag economic growth, but a shortage of housing won’t be a problem. At least for investors, who can afford it.
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